As we get older, we inevitably start to think more about our retirement funds.
We might hope that our pension pot and plenty of savings will see us living comfortably in retirement, for instance. However, time and again our advisers speak to people who are turning to equity release and using some of the money tied up in their homes to supplement their retirement funds. This begs the question; does good money management alone prepare savers for a long and happy retirement?
We surveyed 2,000 people to find out exactly that. Here is what we found.
Retirement planning takes patience
A common perception is that retirement planning is only undertaken by older people, but that’s simply not the case.
In fact, our survey found a significant disconnect between people’s perception of retirement planning versus their ability to save money. Our results revealed that 75% of Brits are worried that they don’t have enough money for retirement – yet, nearly half (45%) of those respondents said they’re also good with money.
So, why aren’t successful savers confident in their retirement planning ability? It comes down to a single disparity: the reality of retirement planning is a lot different in practice from basic ‘good money management’.
After all, a healthy retirement fund is not cultivated over several years; it takes many decades of careful financial planning. Think about how long it would take to save and pay a 20-year mortgage in full, for instance. It would be unfeasible to save that amount in just a few short years – and the same applies to retirement planning. For a fighting chance to succeed, you need to spread those long-term goals over a longer period.
Why is retirement planning so difficult?
Of course, spreading the cost is not the hardest part of retirement planning. Rather, the Herculean task is to accurately understand the figures required to live comfortably in retirement in the first place.
According to our survey, over 60s save £20,500 on average over the course of their lifetimes. A sizable sum on the surface, but still not enough to retire comfortably.
In fact, as revealed in our earlier Retirement Realities report, an individual needs to supplement a full state pension with around £12,000 per year. For a 20-year retirement, this pension pot would total a staggering £240,000.
For many, raising the missing £220,000 with good money management alone is unfeasible and impractical. It would require significant savings every month that many individuals cannot afford without impacting their current standard of living.
We can therefore say that money management alone is not enough to fund a full retirement. In which case, retirees may need to source wealth from their other significant investments. This is when equity release can help to bridge the retirement gap.
Bridging the retirement gap with equity release
As our survey has quite clearly shown, simply being ‘good with money’ is not, in many cases, enough to prepare for retirement.
At Equity Release Supermarket, however, we help thousands of people every year find financial freedom – even when the odds are stacked against them.
For instance, your home is likely the biggest investment of your lifetime, but many people don’t realise that you can access that wealth without moving or downsizing. Equity release unlocks some of the value of your property, allowing you to capitalise on your long-term investment.
This cash, either released as a one-off lump sum or in multiple drawdown payments, can then be spent on a full and happy retirement. Depending on the property’s market value, these figures can total into tens or hundreds of thousands of pounds, helping to fund a higher standard of living than using pensions or savings alone. In fact, the average amount released through a lump sum plan in the first half of this year was £101,427*
Among the benefits, we are pleased to say that there has also never been a better time to release equity. Interest rates are at an all-time low and the new breed of plans offer a range of flexible features – allowing you to tailor a lifetime mortgage to meet your individual needs both now and in the future.
*Equity Release Council Autumn Report, 21 September 2020.